European stock markets remain stable ahead of U.S. inflation data
European stock markets trade cautiously ahead of the US inflation data released later this week, which may determine the future direction of the central bank’s monetary policy.
The Stoxx 600 Index hit a record high on Friday and was flat in early trading. In London, the FTSE 100 Index rose 0.2%.
Economists surveyed by Bloomberg expect that US data released on Thursday will show that the year-on-year inflation rate in May jumped to 4.7% following the unexpectedly strong consumer price report in April.
The Fed is the most influential central bank in the world and believes that strong inflation is the temporary impact of the industry’s reopening after the pandemic closed last year. However, investors remain vigilant about continued price increases, which may force financial policymakers to raise interest rates faster than they currently anticipate.
“This year will be a transitional year for monetary policy,” said Gergely Majoros, a member of the European Fund Manager Carmignac’s Investment Committee. He added that after getting used to the central bank’s strong support for financial markets during the pandemic, “investors will have difficulty managing this shift.”
The US Treasury Secretary and former Fed Chairman Janet Yellen also told Bloomberg on Sunday that if President Joe Biden’s trillion-dollar stimulus plan resulted in slightly higher interest rates, it would be “a plus point.”
“For ten years, we have been fighting against too low inflation and too low interest rates,” Yellen said.
Majoros added that stock market investors are also increasingly worried that the company has failed to meet analysts’ increasingly bullish earnings expectations.
As companies hit by the lockdown last year benefited from the recovery in demand, the first quarter of the first quarter of the Atlantic is ushered in, and forecasters have widely raised their expectations for the second quarter.
“Analyst optimism is reaching extreme levels,” Liberum strategists Joachim Klement and David Mak commented in a research report.
They stated that in the US Stoxx Index and the Standard & Poor’s 500 Index, “the proportion of companies that have undergone upgrades is now roughly at a historical high.” “We expect the next earnings season to be a reality test for many analysts and investors.”
Asian markets were mixed on Monday. Hong Kong’s Hang Seng Index fell 0.5%, while Japan’s Nikkei 225 Index rose 0.3%.
The yield on the 10-year U.S. Treasury bond, which is inversely proportional to the price, rose 0.02 percentage points to 1.577%. As investors expect rising inflation, which erodes the value of fixed interest payments on bonds, the yield has climbed from about 0.9% at the beginning of the year. The yield on German 10-year government bonds was flat at minus 0.206%.
The international oil benchmark Brent crude oil fell 0.6% to US$71.49 per barrel after hitting its highest level since May 2019 in Asian trading earlier on Monday.
In terms of currency, the exchange rate of the euro against the US dollar was stable, with the purchase of US$1.2163. The pound fell 0.2% to 1.4133 US dollars, as the increasing number of coronavirus cases prompted the government to consider continuing to implement some lockdown measures in England after the date of relaxation of restrictions on June 21.